How A CEO Bounced French Hospital Back From Bankruptcy's Brink

One should never start a story with a series of numbers. But the amazing turn of 112-bed French Hospital Medical Center in San Luis Obispo away from the brink of bankruptcy justifies an exception.

Here the dollars—pre-tax net income—do tell a lot about the struggles and successes of this hospital near the Central California coast.

2000: $-2,682,415.

2001: $3,371,702.

2002: -$6,229,620.

2003: -$2,612,078.

2004: -$1,397,690.

2005: $1,977,660.

2006: $16,868,195.

2007: $1,800,282.

2008: $6,827,234.*

In 2004, those leaks from its bottom line were matched by 200 leaks in its roof, beneath which buckets dotted the hallways and rooms to catch periodic torrents of rain.

Its once prized cardiac program's equipment had deteriorated so badly, physicians repaired it with equipment from older devices no longer fit for use. Disgusted doctors started admitting their patients to Sierra Vista Regional Medical Center, French's primary competitor.

French's pain management and psychiatric programs were closed in 1999. Its pediatric program closed in 2001. Sierra Vista started its own heart program a few miles away.

"They had taken it from what was a very successful and prosperous hospital to one that was sorely, almost criminally in neglect," says Alan Iftiniuk, who took over as CEO in 2004 under the hospital's new operator, Catholic Healthcare West. "There were serious discussions about padlocking the building and developing the grounds for condominiums, although the community rallied to stop that from happening," he says.

David Garth, president and CEO of the San Luis Obispo Chamber of Commerce, says he knows a man who was undergoing a cardiac catheterization procedure at French during its period of poor management. "He was getting his heart cathed when the machine broke, and they had to take him by ambulance over to Sierra Vista," Garth says.

He added that during these tempestuous times, "the employees had a tremendous spirit that was kind of a tradition. They were doing everything they possibly could under very difficult circumstances to try to keep the hospital afloat."

That neglect stemmed from events beginning in 1996, when French's owner, OrNda Health was purchased by Tenet Healthcare Corp.

Tenet also owned Sierra Vista and another French competitor, Twin Cities Community Hospital in Templeton.

A year later, the Federal Trade Commission acted on anti-trust laws to order Tenet to sell French and another hospital. Many in the community suggested that from the way the hospital languished, the buyer, Vista Hospital Systems, did not appear motivated to operate a thriving healthcare facility.

"I believe the previous management did not negotiate properly for costs that it could charge for services, or that's what I was told," says San Luis Obispo Mayor Dave Romero. "Now, French has a much better, superior management."

Iftiniuk echoed his view. "It seemed that Tenet looked to find the least experienced buyer, some would say a corrupt new owner to take it over," Iftiniuk says.

The turnaround came after Vista filed for Chapter 11 in 2004 and prepared to sell both French and Arroyo Grande to a for-profit company in Pennsylvania. A group of about 50 physicians stopped the deal. They organized the San Luis Obispo Physicians Alliance, which purchased the property and persuaded Catholic Healthcare West to lease the building and run the hospital.

Long a for-profit facility, the 1972-built French Hospital would now become a non-profit facility for the very first time.

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